U.S. Gulf Coast oil spillers about to face day in court

Oil is seen on the surface of the Gulf of Mexico in an aerial view of the Deepwater Horizon oil spill off the coast of Mobile, Alabama, in this handout photograph taken from a U.S. Coast Guard HC-144 Ocean Sentry aircraft on May 6, 2010 and obtained on May 9, 2010.

(Reuters) - Nearly three years after a deepwater well rupture killed 11 men, sank a rig and spewed 4 million barrels of oil into the Gulf of Mexico, BP and the other companies involved are scheduled to face their judge in court.

The trial over the worst U.S. offshore oil spill is set to start Monday in New Orleans before a federal judge and without a jury. Few expect the case, seen lasting several months, will be decided by the judge.

An eleventh-hour settlement this weekend is a possibility, but legal experts expect a resolution, at least with the U.S. Department of Justice, in the coming months. Early testimony is likely to set the tone for any settlement talks, depending on how damaging the evidence is, they said.

"This is a game of corporate chicken," said John Zavitsanos, a Houston civil litigator. "We have tangled with BP often, and they blink."

Lined up against them will be the Justice Department, several Gulf Coast states and other plaintiffs.

BP has a history of settling civil cases before or during trial. Four trials began over the 2005 explosion at its Texas City refinery that killed 15 people. All were settled. Payouts totaled $3.1 billion. BP has since sold the refinery.

The stakes are higher this time, though. The Macondo well explosion and spill on April 20, 2010 affected five state coastlines, prompted a six-month ban on oil and gas drilling in the Gulf and disrupted the livelihoods of fishermen, hoteliers and others. And once a trial gets under way, a new dynamic can take hold.

"If the first couple of days are good for the plaintiffs or good for the defendants, that could shift. Once the first pitch is thrown, those odds could change," said Anthony Sabino, a business law professor at St. John's University School of Law.

Just ahead of the trial, BP won agreement from the Justice Department to exclude 810,000 barrels from the total spilt barrels estimate, but BP says the estimate is still too high. It also wants "efforts to do the right thing" afterwards taken into account and has earmarked only $3.5 billion for Clean Water Act payments, compared with its potential maximum liability of $17.5 billion.

A BP settlement with the Justice Department over such a large liability could lead to another delay of a trial that has already been postponed.

"With the federal government out of it, he (Barbier) might well postpone ... particularly if the states indicated to him that they were continuing to talk," said Ed Sherman of Tulane University Law School in New Orleans.

"REASONABLE TERMS"

BP has already paid out $9 billion in a partial settlement over the spill. Last year it also settled 14 criminal charges with a guilty plea and a record $4 billion in fines and penalties.

The civil claims to be covered next week could surpass these, and the trial's significance to BP was evident at a February 5 news conference in London. When Chief Executive Bob Dudley said the company would vigorously defend itself, he repeatedly looked toward his top in-house lawyer, Rupert Bondy, for moral support.

BP has repeatedly said it will settle on "reasonable terms," but Bondy drew a line in the sand this week, saying the British company now goes to trial "faced with demands that are excessive and not based on reality."

Its spill bill is already impressive: Accounting provisions total $42 billion - about 30 percent of its stock market value. It has sold assets worth $38 billion to finance compensation, clean-ups and fines. It has paid, or committed to pay, $37 billion of this. The actions have sliced $5 billion a year, or 14 percent, off its cash flow - a basic money-making measure.

And there is more to come. That is why, even on forward measures of earning power, a shrunken BP still lags its peers.

If BP is found "grossly negligent" - a key question for the trial - its fine under the U.S. Clean Water Act could be as high as $17.5 billion based on a total of 4.1 million barrels spilled and a maximum fine of $4,300 a barrel.

It could also be much lower, at a maximum $1,100 per barrel, or $4.5 billion, if BP's claim that it was "no more than negligent" is proved.

Aside from the Clean Water Act, two other claim groups come under the jurisdiction of Barbier, a federal judge for the Eastern District of Louisiana. Both are harder to quantify.

Economic damage claims totaling $34 billion have been made by Gulf Coast states including Louisiana and Alabama. BP has said these are excessive, and that its clean-up spending had a positive economic impact.

A third set of claims, for natural resources damage, has not even been quantified yet.

PROVING GROSS NEGLIGENCE

From Monday, phase one of the trial will focus on the level of negligence and on apportioning blame among the defendants.

Phase two will focus on the number of barrels spilled from the blown-out well.

Together, they could drag into next year, and neither phase will consider the size of any fine. But a gross negligence finding could open the way for extra costs in the form of punitive damages.

Experts point out that strong evidence of a reckless and willful disregard for employee safety and environmental health would be required to prove gross negligence.

"It is very difficult to prove, and that is something that these defendants are counting on," Sabino said.

Zavitsanos cited the 1970 Ford Pinto Memo as one of the few cases where the evidence was strong enough to prove gross negligence. In this case, Ford Motor Co was shown to have been aware of a design flaw and that a crash could puncture the gasoline tank and cause a fire. It was also shown to have decided to risk death and injury lawsuits rather than fix the design.

Steve Herman, one of the lead lawyers for the plaintiffs, said they contend there is "overwhelming evidence" that BP, Transocean and Halliburton "were all grossly negligent, and we look forward to laying bare that evidence for all to see."

Alabama Attorney General Luther Strange, who will speak for the states in the trial, agreed that the evidence would show BP's conduct reaches the level of gross negligence and said expert testimony would prove "very, very damaging to BP."

Strange plans to pummel BP with declarations that the spill was both predictable and preventable, and that the company fosters a "culture of callousness."

"It's a focus of profits over safety," he said in an interview on Thursday.

The companies have consistently held that whatever mistakes were made, they don't rise to the level of gross negligence.

The case is In re: Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010, No. 10-md-02179, in the U.S. District Court, Eastern District of Louisiana.